J.M. Smucker Q1 Results Top Estimates, Reaffirms 2016 Outlook

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Branded food products maker J.M. Smucker Co. (SJM) reported Thursday that profit for the first quarter grew 18 percent from last year, reflecting strong double-digit sales grow amid contribution from acquisitions.

However, both adjusted earnings per share and quarterly revenues topped analysts' expectations. The company also reaffirmed its earnings and sales guidance for the full-year 2016.

"Contributions from the Big Heart acquisition and new products were key drivers of this performance. Notably, our launch of Dunkin' Donuts K-Cup pods got off to a great start as we shipped over 100 million cups during the first quarter," CEO Richard Smucker said.

The Orrville, Ohio-based maker of Smucker's jams and Folgers coffee reported a net loss of $136.4 million for the first quarter, up 18 percent from $116 million in the prior-year quarter, while earnings per share remained flat with last year at $1.14 per share.

Excluding special items, adjusted net income for the quarter was $158.4 million or $1.32 per share, compared to $136.1 million or $1.34 per share in the year-ago quarter.

On average, 15 analysts polled by Thomson Reuters expected the company to report earnings of $1.23 per share for the quarter. Analysts' estimate typically excludes one-time items.

Adjusted income, before amortization, for the latest quarter was $1.60 per share, compared to last year's $1.50 per share.

Net sales for the quarter surged 47 percent to $1.95 billion from $1.32 billion in the same quarter last year, and topped ten Wall Street analysts' consensus estimate of $1.90 billion.

The strong double-digit sales growth reflected a $561.3 million contribution of Big Heart Pet Brands, acquired in fiscal 2015, and the U.S. retail launch of Dunkin' Donuts K-Cup pods during the quarter.

Net sales, excluding acquisitions and foreign currency exchange, increased 6.6 percent to $1.40 billion from last year.

U.S. retail coffee net sales grew 12 percent to $565 million, while U.S. retail consumer foods net sales remained flat with last year at $582.2 million.

International and foodservice net sales improved 7 percent to $254.9 million from last year. The new U.S. retail pet foods division (Big Heart) generated sales of $549.9 million.

"Integrating the Pet Food business and beginning to recognize identified synergies continues to be a significant focus area. The integration efforts and first quarter results for our Pet Food business further confirms that our entry into the pet food market was timely and strategically positions us for continued growth," Smucker stated.

Operating income margin contracted 70 basis points to 13.7 percent from last year's 14.5 percent as a 110 basis points improvement in gross profit margin was more than offset by higher operating expenses.

Looking ahead to fiscal 2016, the company still expects adjusted earnings in a range of $5.65 to $5.80 per share, on projected net sales growth of 40 percent to $8 billion, reflecting a full-year contribution from Big Heart of about $2.4 billion. Meanwhile, net sales is expected to increase only about 3 percent on the remainder of the company's businesses.

The Street is currently looking for full-year 2016 earnings of $5.73 on annual revenues of $7.92 billion.

The Company also reconfirmed its synergy target related to the Big Heart acquisition of $200 million by the end of fiscal 2018.

"Overall, we are on track to achieve our full year expectations for net sales and earnings, and are confident about the initiatives we have in place to support future growth," Smucker added.

SJM closed Wednesday's regular trading session at $109.15, up $0.24 on a volume of 1.51 million shares. In the past 52-week period, the stock has been trading in a range of $95.60 to $120.65.

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